Penny Stock Fraud Nets Millions
It was a fraud scheme involving penny stocks, but the scheme's mastermind ended up making millions of dollars from unsuspecting investors around the country.
California resident Zirk de Maison, a self-described merchant banker, devised a plan to make himself some easy money off the backs of hard-working folks. From about 2008 to 2013, he created nearly a half-dozen small public shell companies&8212;entities that do no actual business and have no assets. He then offered public shares in the company's penny stocks, which are financial instruments generally worth less than $5 a share.
Why would de Maison deal in penny stocks? Primarily because public information about these stocks and the companies that issue them is hard to find. These very small companies often don't have to file financial reports with the Securities and Exchange Commission (SEC), and their stock usually isn't traded on national or regional stock exchanges.
The companies created by de Maison were purportedly involved in a variety of businesses, including copper and gold mining in South America, high-end diamond trading, and new social media platforms. But in reality, his companies were truly shells&8212;empty inside.
Using fictitious names, de Maison would issue shares in his shell companies to himself and a number of co-conspirators. Then he paid kickbacks to those same co-conspirators&8212;most of them financial brokers&8212;in exchange for using their clients' funds to purchase additional shares of his company stocks.
Besides bribing brokers in several states&8212;including Ohio, California, and New York&8212;to betray the trust of their investor clients by using their money to buy the penny stocks, de Maison found investors through the use of boiler rooms. This technique involved employing high-pressure salespeople to make as many cold calls as possible to potential investors, hounding them to buy shares of stock from de Maison's companies and promising them once-in-a-lifetime opportunities if they acted quickly.
De Maison's scam was a classic pump and dump scheme. The original investors&8212;de Maison and his cohorts&8212;convinced large numbers of investors to purchase stock shares, driving up the price. Those same original investors, including de Maison, would sell their shares when the price of the stock reached its highest level, then the bottom would fall out&8212;the price of the stock plummeted and the rest of the investors were left holding almost worthless shares.
All told, de Maison received and embezzled approximately $39 million in investor money.
The FBI investigation into this particular scheme began in 2013, when our Cleveland Field Office received allegations of illegal activities on the part of an Ohio financial consultant who may have victimized a number of Ohio investors. The investigation into this consultant widened and eventually involved victim and suspect interviews, reviews of e-mails and chat messages, and extensive analysis of financial records. Investigators were ultimately able to unravel the entire scheme, and federal charges were filed against de Maison&8212;who had by that time been living it up in the lap of luxury&8212;and the others.
Zirk de Maison pled guilty in 2015 in connection with his role as the scheme's mastermind. And this past January, he and seven others were sentenced to federal prison for committing securities fraud.
In addition to the criminal case against de Maison and his associates, the SEC&8212;who partnered with the Bureau during our investigation and was of tremendous assistance&8212;also conducted a parallel civil case against the perpetrators.
Don't Be a Victim
According to the SEC, here are some tips that should help members of the investing public avoid being victimized by unscrupulous brokers and others:
Consider the source. Remember that people touting the stock may well be insiders of the company or paid promoters who stand to profit handsomely if you invest.
Find out where the stocks trade. Many of the smallest and most thinly trade stocks aren't listed on national or regional exchanges but are often traded in over-the-counter (OTC) markets. Stocks that trade in OTC markets are generally the most risky and the most susceptible to manipulation.
Research the opportunity carefully. If you can't get a company's current financial statements, check with your state securities regulator to determine if there are issues with the company.
Watch out for high-pressure pitches. Don't fall for the "once in a lifetime" line until you have a chance to think about and fully investigate the investment opportunity.
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Stocks & Mutual Funds Information:
Related Articles
The Secret Art of Backtesting
If you have not back tested your trading system, you might as well trade with your eyes close. In fact, whatever technical analysis criterion you use to trade with, be it moving averages, candle sticks, volatility breakouts, fibonacci retracements or any other trading system you have devised you're going to need to back test your trading system thoroughly and objectively in order to remove any possible doubt about it's capability.
Ignore Stock Market Talking Heads
You should ignore analysts on TV, the radio, the newspaper and all other TALKING HEADS when it comes to investing! What stocks do they talk about? - The same old group, every day of every year - Why? Because they don't know any better, they are sheep like the general public, repeating what every economic textbook says and every other economist tells them to say. Everyday, the same companies are highlighted on the evening news -WHY?They aren't going anywhere.
How to Evaluate Load vs. No Load Mutual Funds
If you have been dealing with mutual funds for any length of time, you undoubtedly have faced the question of which is better: Load Funds or No Load Funds. If you are new to investing, "load" simply refers to the commission paid to the broker selling the fund.
VIX
No, this is not a symbol for some Latin number. The Wall Street mavens talk about this market timing device as if they knew how to use it to determine which way the stock market is going - up or down.
Stock Market Education; Day Trading for Beginnners; How to Pick Stocks
The trading method you employ to approach the stock market can make a big difference in your results.Stock trading is a very competitive field and in order to succeed you need to FOCUS on a set of simple strategies that you can implement without hesitation.
The Holy Grail (of Investment)
Every year I go to the Money Show in Orlando, Florida. Thousands attend.
Inverted Interest Rates
Inverted interest rates? What's that? Who cares? Even if you don't understand what Mr. Greenspan is saying (and almost nobody does) it is important to you because it could mean you might lose you job next year or have to cut back on some of the things you want to acquire.
Perfect Storm
Having lived aboard a sailboat for 2 years I was stricken when I saw the movie "PERFECT STORM". I know these are things you want to avoid at all costs.
The Secret to More Winning Trades is as Simple as Avoiding This Common Mistake
If you're a normal human being, your need to feel good about yourself probably causes you to sell your winners too soon - and -- your need to avoid feelings of regret, causes you to hang on to your losers too long.At one time or another, we're all guilty of letting our emotions dictate our investment decisions.
You Wont Like This
Why? Because I am going to shatter your conventional wisdom as I have many times in previous columns about the lies that Wall Street continues to tell you. This time we are going to go deeper into the economy to unearth the truth about lies the politicians are telling you.
How To Pick A Mutual Fund
Mutual funds by definition are a mixed bag of stocks, bonds and a little cash. Their price per share is the NAV, Net Asset Value of the total amount of money in the mutual fund divided by the number of shares.
Trading Baskets II: The Crapolio, A Roll of the Dice in the Stock Market
In a previously written article, we expanded the use of the term "Trading Baskets" to include stocks from different sectors or industries. Now I want to share with you an approach to day trading or swing trading that I had some success with back in the wild and woolly, pinnacle days of day trading that may still work today.
Overvalued & Underbought
With all the bad news that has been dumped upon the economy for some reason the stock market is going up. Why?The SEC (Securities and Exchange Commission) has just set up new guidelines for core earnings.
How Covered Calls Turned a Trader Around
Sidney felt sick as she looked at her latest OptionsXpress trading statement. In just 8 months, she had managed to turn her $120,000 account balance into less than $70,000.
Stock Market Investments
If there is one term over-used when talking about making investments in the stock market I would think that term would be: buy low, sell high.Buy low? Sell high? How low is low and how high is high? I like the term buy low, sell dear, much better! But better still are the terms buy and hold, and dollar-cost-averaging (buying the same stock at different prices through the years).
My Stock - Right or Wrong
We all know the expression, "My country, right or wrong", but have you ever thought about the stocks or mutual fund you own and said to yourself, "My stock - right or wrong" and held on to your position even as you saw your hard-earned money disappearing?This is the Buy N Hold strategy and, in case you haven't noticed, lost from 40% to 60% and more of investors' money from 2000 to 2003. Fortunately, for the past year stock markets around the world have gone up and folks have recovered about 25% to 30% from those low numbers.
How We Eluded The Bear Of 2000
The date October 13, 2000 will forever be embedded in my mind. It was the day after our mutual fund trend tracking indicator had broken its long-term trend line and I sold 100% of my clients' invested positions (and my own) and moved the proceeds to the safety of money market accounts.
Trading vs Investing
I often hear from people, "I don't trade. I invest.
Shadow Bull
As one of my regular readers you know I have been a stock market bear for the past 2 years and have encouraged everyone to put their money into a money market account or a short-term no-load bond fund and for the more adventurous what is called a bear mutual fund that goes up when the market goes down. Just being in cash as outlined in my book would have saved 40% or more of your money.
Oil Stocks As A Long Term Investment
The demand for world oil is increasing while world reserves are decreasing. This is a known fact.